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November 26, 2013

Rollovers From Employer-Sponsored Plans Fueling IRA Growth: ICI

85% of households with rollovers in their traditional IRAs rolled over the entire retirement account balance

Rollovers from employer-sponsored retirement plans are fueling growth in IRAs, with nearly half of traditional IRA-owning households in the U.S. indicating their IRAs contained rollovers from employer-sponsored retirement plans, according to the latest research by the Investment Company Institute.

Among households with rollovers in their traditional IRAs, 85% indicated they had rolled over the entire retirement account balance in their most recent rollover, according to the ICI report, The Role of IRAs in U.S. Households’ Saving for Retirement, 2013.

The most recent available data show that households transferred $272 billion from employer-sponsored retirement plans to IRAs in 2008, the Washington-based ICI found. In 2013, about 18 million U.S. households (or 49% of all U.S. households owning traditional IRAs) had traditional IRAs that included rollover assets.

ICI’s survey, released in November and conducted in May, was based on a sample of 3,006 randomly selected, representative U.S. households owning traditional IRAs, Roth IRAs and employer-sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs).

With $5.7 trillion in assets at the end of the second quarter, individual retirement accounts represented more than one-quarter of U.S. total retirement market assets, compared with 17% two decades ago, ICI says.

IRAs also have risen in importance on household balance sheets. In June 2013, IRA assets were 9% of all household financial assets, up from 4% of assets two decades ago. In May 2013, 46.1 million U.S. households, or 38%, reported they owned IRAs.

Among all IRA-owning households in May, 84% also had employer-sponsored retirement plans; that is, they had defined contribution (DC) plan balances, current defined benefit (DB) plan payments, or expected future DB plan payments, ICI found. Another 29% of U.S. households reported employer-sponsored retirement plan coverage, but no IRAs. All told, ICI says that 67% of all U.S. households had some type of formal, tax-advantaged retirement savings.

Other key findings from the ICI survey include:

Although most U.S. households were eligible to make contributions, few did so. Only 15% of U.S. households contributed to any type of IRA in tax year 2012, and very few eligible households made catch-up contributions to traditional IRAs or Roth IRAs. Among nonretired traditional IRA-owning households not making contributions in tax year 2012, 37% indicated they did not contribute to their IRAs because they were saving enough through their retirement plans at work.

IRA withdrawals were infrequent and mostly retirement related. Twenty-one percent of traditional IRA–owning households took withdrawals in tax year 2012, the same share as in tax year 2011.

The majority of traditional IRA withdrawals were made by retirees. Seventy-six percent of households that made traditional IRA withdrawals were retired. Indeed, only 8% of traditional IRA–owning households in 2013 headed by individuals younger than 59 took withdrawals. Sixty-six percent of withdrawals were calculated using the required minimum distribution (RMD)—this was the most common amount withdrawn.

Traditional IRA-owning households not making withdrawals generally indicated they do not plan to tap their IRAs until age 70½. Sixty-six percent of traditional IRA-owning households not making withdrawals in tax year 2012 indicated it was unlikely they would withdraw from their IRAs before age 70½. The most commonly cited planned future uses of IRA withdrawals were to pay for living expenses and cover emergencies.

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